Borrowing for tax cuts reckless in light of OECD report

The Green Party is challenging the Government to justify a new round of income tax cuts in light of a new OECD report, which shows that New Zealand has low tax rates compared to the rest of the OECD.

“This Government is proposing to cut taxes for upper income earners with the result that, all other things being equal, we will run a larger budget deficit and borrow more. Yet we already have some of the lowest income taxes in the OECD. Only Mexico has a smaller ‘tax wedge’ than New Zealand,” said Green Party Co-leader, Dr Russel Norman.

The OECD report, Taxing Wages (2009), was released today. The OECD report does not just look at headline tax rates but rather compares labour costs to the employer with take-home pay for workers. It is standard throughout the OECD for employers and employees to make contributions to social security and superannuation in addition to income tax. These contributions need to be taken into account when looking at the total tax picture, hence their ‘tax wedge’ analysis.

“New Zealand’s position at the bottom of the tax wedge table is because we don’t have compulsory superannuation and social security payments like a large majority of OECD countries. The Government misleads people when it compares our headline tax rates with other countries without taking this into account,” said Dr Norman.

“With the second lowest tax wedge in the OECD, it is hard to justify borrowing to pay for tax cuts at the top. Without the imminent tax cuts, we would be able to move into surplus faster, be able to start paying off our growing debt sooner, and continue to deliver high levels of Government services.

“It is reckless for National to give tax cuts at the top end when we are running a budget deficit and building up government debt. This OECD comparison shows just how unnecessary this is.

“National claim to be fiscally conservative but in truth they are fiscally reckless,” said Dr Norman.

Link to OECD report, Taxing Wages:
http://www.oecd.org/document/6/0,3343,en_2649_34533_44993478_1_1_1_1,00.html

ENDS

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